Ethereum Essentials: Smart Contracts and ERC20 Standard

Ethereum has opened up the brand new world with cutting-edge technologies and a totally new user experience. Automated sharing, smart marketplaces, medical records tracking and even internet without servers! All these things become possible with Ethereum. But how?

A bit of history

If you ask, every Ethereum nerd can tell you about how the platform was born. It all started with the conception of smart contracts developed by Nick Szabo in 1997. Szabo is one of the most important figures in the crypto world. He is a pioneering cryptographer and legal scholar who defined the term “Smart Contracts” and its importance for financial institutions. The idea of smart contacts implies the blueprint of relationships between two parties, where all contractual clauses are encoded in the hardware and software to make the contract breach unprofitable. As an example of how smart contracts work, the author describes vending machines. Bob puts a quarter in the vending machine and then receives a Soda, whereas Alice puts one dollar bill and gets a Soda and a change back. The vending machine acts as a contract bearer that offers anyone who has some coins to participate in an exchange.

Smart contracts work the same way in the blockchain and operate according to cryptographic keys, security protocols and other hard-coded rules. These rules were turned into today’s reality by Vitalik Buterin on July 30, 2015, the day when the Ethereum network has been launched.

Now what?

Three years later, Ethereum remains the most promising and popular project, after Bitcoin. It is a Solidity-written platform that allows building decentralized applications on smart contracts. Ethereum has its native coin that fuels all the processes in the Ethereum network. As a pioneer in smart contract technologies, Ethereum has attracted millions of people, including IT and fintech investors, independent developers and cryptocurrency enthusiasts.

The platform gave birth to thousands of Ethereum-based platforms, decentralized applications and games and set the trend to build separate cryptocurrency projects alike. According to Etherscan, the Ethereum network runs over 104K (!) tokens.

ERC20 Standard

Cryptocurrencies that utilize Ethereum protocols are called Tokens that stand for units defining a balance on a certain wallet. Most of those are built according to ERC20. This is a universal smart contract standard for the Ethereum blockchain. The name ERC 20 is an abbreviation for Ethereum Request for Comment, where 20 is the number assigned to the request. The standard represents the common list of hard-coded rules required for interacting with the Ethereum ecosystem including transferring between addresses and execution of smart contracts. So whenever you see some crypto stated as an ERC20 token, rest assured, it is an Ethereum-based token running in the Ethereum network.

Ethereum Ecosystem and Decentralized Exchanges

The Ethereum network involves plenty of other platforms utilizing smart contracts for certain purposes, such as information storage, market predictions, content creating, etc. Many of projects run ICO at their very beginning to raise some funds for further development. The number of interesting projects keeps increasing every day. This factor somehow has led to the concept of decentralized exchanges (DEX) that allow exchanging ERC20 in one place. Unlike a regular centralized exchange with tokens and altcoins onboard, decentralized one is spread out amongst the network participants and designed just for ERC20 tokens.

See more on decentralized exchanges in our CEO’s keynote at BlockShow Europe 2018 on YouTube.

Vitalik Buterin, as the Ethereum creator, embraces the idea of decentralized exchanges hoping that centralized ones will “burn in hell”. Well, at this point, we think that every product should be given a chance, whether it is decentralized or not.

Changelly and Tokens

Changelly supports over 200 cryptos, the overwhelming majority of which are ERC20 tokens. You can easily exchange one to another at the best rates just in a few clicks.

If you have some questions regarding ERC20 tokens or how to buy them, or if you want to list your token, please inform us at [email protected] in our live chat!

Stay tuned!

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